<PAGE>


                                                                 EXECUTION COPY


-------------------------------------------------------------------------------


                      AMENDED AND RESTATED SECURITY AGREEMENT
                  (Amending and Restating the Security Agreement
                           dated as of December 3, 1996)


                                       among


                              ARCADIA FINANCIAL LTD.,


                         ARCADIA RECEIVABLES FINANCE CORP.,


                         ARCADIA RECEIVABLES CONDUIT CORP.,


                   ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST


                         FINANCIAL SECURITY ASSURANCE INC.,


               BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION


                                        and


                   NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
                    as Indenture Trustee and as Collateral Agent


                             Dated as of July 21, 1998

-------------------------------------------------------------------------------

<PAGE>

                                 TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                    PAGE
                                                                    ----
                                    ARTICLE I
                                   DEFINITIONS
<S>            <C>                                                  <C>
Section 1.1.   Defined Terms. . . . . . . . . . . . . . . . . . . . .  2
Section 1.2.   Rules of Interpretation. . . . . . . . . . . . . . . .  4

                                     ARTICLE II
                                   THE COLLATERAL

Section 2.1.   Grant of Security Interest by the Issuer . . . . . . .  4
Section 2.2.   No Transfer of Duties. . . . . . . . . . . . . . . . .  5
Section 2.3.   Termination and Release of Rights. . . . . . . . . . .  5
Section 2.4.   Effectiveness. . . . . . . . . . . . . . . . . . . . .  6

                                    ARTICLE III
                                THE COLLATERAL AGENT


Section 3.1.   Appointment and Powers . . . . . . . . . . . . . . . .  6
Section 3.2.   Performance of Duties. . . . . . . . . . . . . . . . .  7
Section 3.3.   Limitation on Liability. . . . . . . . . . . . . . . .  7
Section 3.4.   Reliance upon Documents. . . . . . . . . . . . . . . .  7
Section 3.5.   Successor Collateral Agent . . . . . . . . . . . . . .  8
Section 3.6.   Indemnification. . . . . . . . . . . . . . . . . . . .  9
Section 3.7.   Compensation and Reimbursement . . . . . . . . . . . .  9
Section 3.8.   Representations and Warranties of the Collateral Agent  9
Section 3.9.   Waiver of Setoffs. . . . . . . . . . . . . . . . . . . 10
Section 3.10.  Control by the Controlling Party . . . . . . . . . . . 10

                                     ARTICLE IV
                              COVENANTS OF THE ISSUER

Section 4.1.   Preservation of Collateral . . . . . . . . . . . . . . 10
Section 4.2.   Notices. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.3.   Waiver of Stay or Extension Laws; Marshalling of 
               Assets . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.4.   Noninterference, Etc.. . . . . . . . . . . . . . . . . 11
Section 4.5.   Issuer Changes . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

                                       i
<PAGE>

                                 TABLE OF CONTENTS
                                    (continued)


<TABLE>
<CAPTION>

                                                                    PAGE
                                                                    ----


                                     ARTICLE V
                    CONTROLLING PARTY; INTERCREDITOR PROVISIONS

<S>            <C>                                                  <C>
Section 5.1.   Appointment of Controlling Party . . . . . . . . . . . 12
Section 5.2.   Controlling Party's Authority. . . . . . . . . . . . . 12
Section 5.3.   Rights of Secured Parties. . . . . . . . . . . . . . . 13
Section 5.4.   Degree of Care . . . . . . . . . . . . . . . . . . . . 13

                                     ARTICLE VI
                               REMEDIES UPON DEFAULT

Section 6.1.   Remedies upon a Default. . . . . . . . . . . . . . . . 14
Section 6.2.   Restoration of Rights and Remedies . . . . . . . . . . 15
Section 6.3.   No Remedy Exclusive. . . . . . . . . . . . . . . . . . 16

                                   ARTICLE VIII
                                   MISCELLANEOUS

Section 7.1.   Further Assurances . . . . . . . . . . . . . . . . . . 16
Section 7.2.   Waiver . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.3.   Amendments; Waivers. . . . . . . . . . . . . . . . . . 16
Section 7.4.   Severability . . . . . . . . . . . . . . . . . . . . . 17
Section 7.5.   Nonpetition Covenant . . . . . . . . . . . . . . . . . 17
Section 7.6.   Notices. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.7.   Term of this Security Agreement. . . . . . . . . . . . 20
Section 7.8.   Assignments; Third-Party Rights; Reinsurance . . . . . 20
Section 7.9.   Consent of Controlling Party . . . . . . . . . . . . . 20
Section 7.10.  Trial by Jury Waived . . . . . . . . . . . . . . . . . 21
Section 7.11.  Governing Law. . . . . . . . . . . . . . . . . . . . . 21
Section 7.12.  Consents to Jurisdiction . . . . . . . . . . . . . . . 21
Section 7.13.  Limitation of Liability. . . . . . . . . . . . . . . . 21
Section 7.14.  Determination of Adverse Effect. . . . . . . . . . . . 22
Section 7.15.  Counterparts . . . . . . . . . . . . . . . . . . . . . 22
Section 7.16.  Headings . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>

                                      ii
<PAGE>


                                 TABLE OF CONTENTS
                                    (continued)

<TABLE>
<CAPTION>

                                                                    PAGE
                                                                    ----

<S>            <C>                                                  <C>
Section 7.17.  Limited Recourse . . . . . . . . . . . . . . . . . . . 22
Section 7.18.  Respective Rights of the Issuer and the Secured 
               Parties in the Collateral. . . . . . . . . . . . . . . 22
</TABLE>

                                     iii
<PAGE>



                      AMENDED AND RESTATED SECURITY AGREEMENT


          AMENDED AND RESTATED SECURITY AGREEMENT, dated as of July 21, 1998, by
and among ARCADIA FINANCIAL LTD., a Minnesota corporation ("AFL"), ARCADIA
RECEIVABLES FINANCE CORP., a Delaware corporation (the "Seller"), ARCADIA
RECEIVABLES CONDUIT CORP., a Delaware corporation (the "Original Issuer"),
ARCADIA AUTOMOBILE RECEIVABLES WAREHOUSE TRUST, a Delaware business trust (the
"Issuer"), FINANCIAL SECURITY ASSURANCE INC., a New York stock insurance company
(the "Security Insurer"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(the "Administrative Agent") and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as collateral agent (in such capacity, the "Collateral Agent") and as indenture
trustee (in such capacity, the "Indenture Trustee").

                                 W I T N E S E T H

          WHEREAS, pursuant to the Amended and Restated Receivables Purchase
Agreement and Assignment dated as of July 21, 1998 (the "Purchase Agreement")
between AFL and the Seller, AFL is selling to the Seller from time to time all
of its right, title and interest in and to certain Receivables and the other
property specified therein; and

          WHEREAS, pursuant to the Amended and Restated Sale and Servicing
Agreement dated as of July 21, 1998 (the "Sale and Servicing Agreement"), among
the Seller, the Issuer, the Original Issuer, AFL, in its individual capacity and
as Servicer, Bank of America National Trust and Savings Association, as RCC
Agent and as Administrative Agent, Morgan Guaranty Trust Company of New York, as
DFC Agent, and Norwest Bank Minnesota, National Association, as Backup Servicer,
Indenture Trustee and Collateral Agent, the Seller is selling to the Issuer from
time to time all of its right, title and interest in and to certain Receivables
and the other property specified therein; and

          WHEREAS, pursuant to the Amended and Restated Indenture dated as of
July 21, 1998 (the "Indenture"), between the Issuer and the Indenture Trustee,
the Issuer is issuing from time to time its Floating Rate Variable Funding
Automobile Receivables-Backed Notes (the "Notes"); and

          WHEREAS, the Seller has requested that the Security Insurer issue the
Note Policy to the Indenture Trustee to guarantee payment of the Scheduled
Payments (as defined in such Note Policy) on each Distribution Date in respect
of the Notes; and

          WHEREAS the parties hereto (other than the Issuer) have entered 
into a Security Agreement dated as of December 3, 1996 (as amended and in 
effect on the date hereof, the "Original Security Agreement"), and the 
parties hereto wish to replace the Original Issuer with the Issuer hereunder 
and to amend and restate the Original Security Agreement as herein provided;

<PAGE>



          NOW THEREFORE, in order to secure the performance of the Secured
Obligations and for other good and valuable consideration, the adequacy, receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:


                                     ARTICLE I

                                    DEFINITIONS

          Section 1.1.   DEFINED TERMS.

     Terms defined in the Sale and Servicing Agreement (including by way of
reference to other documents), unless otherwise defined herein, shall have such
defined meanings when used herein, and the following terms shall have such
following meanings:


          "AUTHORIZED OFFICER" shall mean, (i) with respect to Financial 
Security, the Chairman of the Board, the President, the Chief Executive 
Officer, Chief Operating Officer, or any Managing Director of Financial 
Security, (ii) with respect to the Indenture Trustee or the Collateral Agent, 
any Vice President or Trust Officer thereof, (iii) with respect to either AFL 
or the Seller, the President, any Vice President or the Treasurer thereof and 
(iv) with respect to the Issuer, any officer of the Owner Trustee who is 
authorized to act for the Owner Trustee in matters relating to the Issuer and 
who is identified on the list of Authorized Officers delivered by the Owner 
Trustee to the Indenture Trustee on the Effective Date (as such list may be 
modified or supplemented from time to time thereafter).

          "COLLATERAL" shall have the meaning assigned to such term in Section
2.1(a) hereof.

          "COLLATERAL AGENT" shall mean, initially, Norwest Bank Minnesota,
National Association, in its capacity as Collateral Agent on behalf of the
Secured Parties, including its successors in interest, until a successor Person
shall have become the Collateral Agent pursuant to Section 3.1, and thereafter
"Collateral Agent" shall mean such successor Person.

          "CONTROLLING PARTY" shall mean at any time the Person designated as
the Controlling Party at such time pursuant to Section 5.1.

          "EFFECTIVE DATE" shall mean July 21, 1998.

          "FINAL TERMINATION DATE" shall mean the date that is the later of (i)
the Insurer Termination Date and (ii) the Trustee Termination Date.

          "INSURER SECURED OBLIGATIONS" shall mean all amounts and obligations
that may at any time be owed or required to be performed to or on behalf of the
Security Insurer (or any agents, accountants or attorneys for the Security
Insurer), including the Security Insurer as third party beneficiary, under the
Insurance Agreement or under any other Transaction Document, 



                                    2


<PAGE>



regardless of whether such amounts are owed or performance is due now or in 
the future, whether liquidated or unliquidated, contingent or non-contingent.

          "INSURER TERMINATION DATE" shall mean the date that is the latest of
(i) the date of the expiration of the Note Policy, (ii) the date on which the
Security Insurer shall have received payment and performance in full of all
Insurer Secured Obligations and (iii) the latest date on which any payment
referred to in clause (ii) above could be avoided as a preference under the
United States Bankruptcy Code or any other similar federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation or reorganization, as
specified in an Opinion of Counsel delivered to the Collateral Agent.

          "NON-CONTROLLING PARTY" shall mean at any time a Secured Party that is
not the Controlling Party at such time.

          "OPINION OF COUNSEL" shall mean a written opinion of counsel
acceptable, as to form, substance and issuing counsel, to the Controlling Party.

          "PROCEEDING" means any suit in equity, action at law or other judicial
or administrative proceeding.

          "SECURED OBLIGATIONS" shall mean the Insurer Secured Obligations and
the Trustee Secured Obligations.

          "SECURED PARTIES" shall mean each of the Indenture Trustee, in respect
of the Trustee Secured Obligations, and the Security Insurer, in respect of the
Insurer Secured Obligations.

          "SECURITY AGREEMENT" shall mean, prior to the Effective Date, the
Original Security Agreement; and from and after the Effective Date, this Amended
and Restated Security Agreement, as the same may from time to time be amended,
supplemented, waived or modified.

          "TRANSACTION DOCUMENTS" shall mean the Indenture, this Security
Agreement, the Sale and Servicing Agreement, the Trust Agreement, the
Administration Agreement, the Note Purchase Agreement, the Purchase Agreement
and any Assignment Agreements (but only with respect to the Collateral), the
Spread Account Agreement, the Insurance Agreement, the Custodian Agreement and
the Lockbox Agreement.

          "TRUSTEE SECURED OBLIGATIONS" shall mean all amounts and obligations
that the Issuer may at any time owe or be required to perform to or for the
benefit of the Indenture Trustee or the Noteholders under the Indenture.

          "TRUSTEE TERMINATION DATE" shall mean the date on which the Indenture
Trustee shall have received on behalf of the Noteholders payment and performance
in full of all Trustee Secured Obligations.



                                    3


<PAGE>



          "UNIFORM COMMERCIAL CODE" or "UCC" shall mean, with respect to any
jurisdiction, the Uniform Commercial Code, or any successor statute, or any
comparable law, as the same may from time to time be amended, supplemented or
otherwise modified and in effect.

          Section 1.2.   RULES OF INTERPRETATION.  The terms "hereof," "herein"
or "hereunder," unless otherwise modified by more specific reference, shall
refer to this Security Agreement in its entirety.  Unless otherwise indicated
in context, the terms "Article" or "Section" shall refer to an Article or
Section of this Security Agreement.  The definition of a term shall include the
singular, the plural, the past, the present, the future, the active and the
passive forms of such terms.


                                     ARTICLE II

                                   THE COLLATERAL

          Section 2.1.   GRANT OF SECURITY INTEREST BY THE ISSUER.

          (a)  The Issuer hereby grants to the Collateral Agent at the Effective
Date and on each Purchase Date, on behalf of and for the benefit of the Secured
Parties to secure the performance of the respective Secured Obligations, a
security interest in all of the Issuer's right, title and interest, whether now
owned or hereafter acquired, in and to all accounts, contract rights, general
intangibles, chattel paper, instruments, documents, money, deposit accounts,
certificates of deposit, goods, letters of credit, advices of credit and
authenticated securities consisting of, arising from or relating to any of the
following property: (i) the Receivables; (ii) the Other Conveyed Property
related thereto; (iii) the rights of the Seller under the Purchase Agreement and
each Assignment Agreement assigned to the Issuer pursuant to the Sale and
Servicing Agreement, including the right to cause AFL to repurchase Receivables
from Seller under certain circumstances; (iv) all amounts required to be
deposited, or deposited, or delivered to the Collateral Agent for deposit, to
the Collection Account by the Seller in respect of the WAC Deficiency Amount or
the Collateral Test; (v) all funds on deposit from time to time in the Secured
Accounts, and in all investments and proceeds thereof (including all income
thereon); (vi) the Sale and Servicing Agreement; and (vii) all present and
future claims, demands, causes and choses in action in respect of any or all of
the foregoing and all payments on or under and all proceeds of every kind and
nature whatsoever in respect of any and all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivables, notes, drafts,
acceptances, chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in theproceeds of any of the foregoing
(collectively, the "Collateral").

          The Collateral Agent, for the benefit of the Indenture Trustee on 
behalf of the Holders of the Notes and for the benefit of the Security 
Insurer acknowledges such grant of a security interest.

                                    4


<PAGE>


          (b)  In order to effectuate the provisions and purposes of this
Security Agreement, including for the purpose of perfecting the security
interests granted hereunder, the Issuer represents and warrants that it has,
prior to the execution of this Security Agreement, executed and filed
appropriate UCC-1 financing statements in Minnesota and Delaware sufficient to
ensure that the Collateral Agent, as agent for the Secured Parties, has a first
priority perfected security interest in all of the Collateral that can be
perfected by the filing of a financing statement.

          Section 2.2.   NO TRANSFER OF DUTIES.  The security interests granted
hereby are granted as security only and shall not (i) transfer or in any way
affect or modify, or relieve the Issuer from, any obligation to perform or
satisfy any term, covenant, condition or agreement to be performed or satisfied
by the Issuer under or in connection with this Security Agreement or any other
Transaction Document to which it is a party or (ii) impose any obligation on any
of the Secured Parties or the Collateral Agent to perform or observe any such
term, covenant, condition or agreement or impose any liability on any of the
Secured Parties or the Collateral Agent for any act or omission on its part
relative thereto or for any breach of any representation or warranty on its part
contained therein or made in connection therewith except, in each case, to the
extent specifically provided herein and in the other Transaction Documents.

          Section 2.3.   TERMINATION AND RELEASE OF RIGHTS.

          (a)  On the Insurer Termination Date, the rights, remedies, powers,
duties, authority and obligations conferred upon the Security Insurer pursuant
to this Security Agreement in respect of the Collateral shall terminate and be
of no further force and effect and all rights, remedies, powers, duties,
authority and obligations of the Security Insurer with respect to the Collateral
shall be automatically released; PROVIDED, that any indemnity provided to or by
the Security Insurer herein shall survive such Insurer Termination Date.  If the
Security Insurer is acting as Controlling Party on the Insurer Termination Date,
the Security Insurer agrees, at the expense of AFL, to execute and deliver such
instruments as the successor Controlling Party may reasonably request to
effectuate such release, and any such instruments so executed and delivered
shall be fully binding on the Security Insurer and any Person claiming by,
through or under the Security Insurer.

          (b)  On the Trustee Termination Date, the rights, remedies, powers, 
duties, authority and obligations, if any, conferred upon the Indenture 
Trustee pursuant to this Security Agreement in respect of the Collateral 
shall terminate and be of no further force and effect and all such rights, 
remedies, powers, duties, authority and obligations of the Indenture Trustee 
with respect to such Collateral shall be automatically released; PROVIDED, 
that any indemnity provided to the Indenture Trustee herein shall survive 
such Trustee Termination Date.  If the Indenture Trustee is acting as 
Controlling Party on the related Trustee Termination Date, the Indenture 
Trustee agrees, at the expense of AFL, to execute and deliver such 
instruments as AFL may reasonably request to effectuate such release, and any 
such instruments so executed and delivered shall be fully binding on the 
Indenture Trustee.

          (c)  On the Final Termination Date, the rights, remedies, powers,
duties, authority and obligations conferred upon the Collateral Agent and each
Secured Party pursuant to this Security Agreement shall terminate and be of no
further force and effect and all rights,


                                    5


<PAGE>



remedies, powers, duties, authority and obligations of the Collateral Agent 
and each Secured Party with respect to the Collateral shall be automatically 
released.  On the Final Termination Date, the Collateral Agent and each 
Secured Party agrees, at the expense of AFL, to execute such instruments of 
release, in recordable form if necessary, in favor of the Seller or AFL as 
the Seller or AFL may reasonably request, to deliver any Collateral in its 
possession to the Issuer, and to otherwise release the lien of this Security 
Agreement and release and deliver to the Issuer the Collateral.

          (d)  To the extent required of the Issuer and its assignees by the
terms of any Transaction Document and permitted by the terms hereof, each of the
Collateral Agent and the Controlling Party shall, and otherwise upon the prior
written instructions of an Authorized Officer of the Controlling Party, the
Collateral Agent shall, at the expense of AFL take (in each case) such steps as
may be necessary, or as the Issuer, in a manner consistent with the Transaction
Documents, may reasonably request, to release the interests of the Secured
Parties in the Collateral, including but not limited to redelivering and
reassigning to the Issuer any releases necessary to permit the Issuer to release
its interest in the Collateral in accordance with the terms thereof and of the
Sale and Servicing Agreement.

          Section 2.4.   EFFECTIVENESS.

          This Amended and Restated Security Agreement amends and restates the
Original Security Agreement, and on the Effective Date replaces the Original
Security Agreement and substitutes the Issuer for the Original Issuer, in each
case without interruption of the parties' performance thereunder or hereunder.



                                    ARTICLE III

                                THE COLLATERAL AGENT

          Section 3.1.   APPOINTMENT AND POWERS.  Subject to the terms and
conditions hereof, each of the Secured Parties hereby appoints Norwest Bank
Minnesota, National Association as the Collateral Agent, and Norwest Bank
Minnesota, National Association hereby accepts such appointment and agrees to
act as Collateral Agent with respect to the Collateral for the Secured Parties,
to maintain custody and possession of the Collateral (except as otherwise
provided hereunder and under the Custodian Agreement) and to perform the other
duties of the Collateral Agent in accordance with the provisions of this
Security Agreement.  Each Secured Party hereby authorizes the Collateral Agent
to take such action on its behalf, and to exercise such rights, remedies, powers
and privileges hereunder and under the other Transaction Documents, as the
Controlling Party may direct and as are specifically authorized to be exercised
by the Collateral Agent by the terms hereof or by the terms of any Transaction
Document, together with such actions, rights, remedies, powers and privileges as
are reasonably incidental thereto.  The Collateral Agent shall act upon and in
compliance with the written instructions of the Controlling Party delivered
pursuant to this Security Agreement promptly following receipt of such written
instructions; PROVIDED, that the Collateral Agent shall not act in accordance
with any instructions (i) which are not authorized by, or are in violation of
the provisions of, this Security Agreement or any Transaction Document, (ii)
which are in violation of any applicable


                                    6


<PAGE>



law, rule or regulation or (iii) for which the Collateral Agent has not 
received reasonable indemnity.  Receipt of such instructions shall not be a 
condition to the exercise by the Collateral Agent of its express duties 
hereunder or under any Transaction Document, except where this Security 
Agreement provides that the Collateral Agent is permitted to act only 
following and in accordance with such instructions.

          Section 3.2.   PERFORMANCE OF DUTIES.  The Collateral Agent shall have
no duties or responsibilities except those expressly set forth in this Security
Agreement and the other Transaction Documents to which the Collateral Agent is a
party or as directed by the Controlling Party in accordance with this Security
Agreement.  The Collateral Agent shall not be required to take any discretionary
actions hereunder except at the written direction and with the indemnification
of the Controlling Party.

          Section 3.3.   LIMITATION ON LIABILITY.  Neither the Collateral Agent
nor any of its directors, officers or employees, shall be liable for any action
taken or omitted to be taken by it or them hereunder, or in connection herewith,
except that the Collateral Agent shall be liable for its negligence, bad faith
or willful misconduct; nor shall the Collateral Agent be responsible for the
validity, effectiveness, value, sufficiency or enforceability against the
Issuer, the Seller or AFL of this Security Agreement or any of the Collateral
(or any part thereof).  Notwithstanding any term or provision of this Security
Agreement, the Collateral Agent shall incur no liability to the Seller, AFL, the
Issuer or the Secured Parties for any action taken or omitted by the Collateral
Agent in connection with the Collateral, except for the negligence or willful
misconduct on the part of the Collateral Agent, and shall incur no liability to
the Seller, AFL, the Issuer or the Secured Parties except for negligence or
willful misconduct in carrying out its duties.  Subject to Section 3.4, the
Collateral Agent shall be protected and shall incur no liability to any such
party in relying upon the genuineness of any notice, demand, certificate,
signature, instrument or other document reasonably believed by the Collateral
Agent to be genuine and to have been duly executed by the appropriate signatory,
and (absent actual knowledge to the contrary) the Collateral Agent shall not be
required to make any independent investigation with respect thereto.  The
Collateral Agent shall at all times be free independently to establish to its
reasonable satisfaction, but shall have no duty to independently verify, the
existence or nonexistence of facts that are a condition to the exercise or
enforcement of any right or remedy hereunder or under any of the Transaction
Documents.  The Collateral Agent may consult with counsel, and shall not be
liable for any action taken or omitted to be taken by it hereunder in good faith
and in accordance with the written advice of such counsel.  The Collaeral Agent
shall not be under any obligation to exercise any of the remedial rights or
powers vested in it by this Security Agreement or to follow any direction from
the Controlling Party unless it shall have received reasonable security or
indemnity satisfactory to the Collateral Agent against the costs, expenses and
liabilities which might be incurred by it.

          Section 3.4.   RELIANCE UPON DOCUMENTS.  In the absence of bad 
faith or negligence on its part, the Collateral Agent shall be entitled to 
rely on any communication, instrument, paper or other document reasonably 
believed by it to be genuine and correct and to have been signed or sent by 
the proper Person or Persons and shall have no liability in acting, or 
omitting to act, where such action or omission to act is in reasonable 
reliance upon any statement or opinion contained in any such document or 
instrument.

                                    7

<PAGE>

               Section 3.5.   SUCCESSOR COLLATERAL AGENT.

          (a)  MERGER.  Any Person into which the Collateral Agent may be
converted or merged, or with which it may be consolidated, or to which it may
sell or transfer its trust business and assets as a whole or substantially as a
whole, or any Person resulting from any such conversion, merger, consolidation,
sale or transfer to which the Collateral Agent is a party, shall (provided it is
otherwise qualified to serve as the Collateral Agent hereunder) be and become a
successor Collateral Agent hereunder and be vested with all of the title to and
interest in the Collateral and all of the trusts, powers, discretions,
immunities, privileges and other matters as was its predecessor without the
execution or filing of any instrument or any further act, deed or conveyance on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding, except to the extent, if any, that any such action is necessary
to perfect, or continue the perfection of, the security interest of the Secured
Parties in the Collateral.


           (b)  RESIGNATION.  The Collateral Agent and any successor 
Collateral Agent may resign upon not less than 60 days' prior written notice 
of such resignation by registered or certified mail to the other Secured 
Parties and the Seller; PROVIDED, that such resignation shall take effect 
only upon the date that is the latest of (i) the effective date of the 
appointment of a successor Collateral Agent and the acceptance in writing by 
such successor Collateral Agent of such appointment and of its obligation to 
perform its duties hereunder in accordance with the provisions hereof and 
(ii) delivery of the Collateral to such successor to be held in accordance 
with the procedures specified in this Agreement and the Custodian Agreement.  
Notwithstanding the preceding sentence, if by the contemplated date of 
resignation specified in the written notice of resignation delivered as 
described above no successor Collateral Agent or temporary successor 
Collateral Agent has been appointed Collateral Agent or become the Collateral 
Agent pursuant to subsection (d) hereof, the resigning Collateral Agent may 
petition a court of competent jurisdiction in New York, New York for the 
appointment of a successor.

          (c)  REMOVAL.  The Collateral Agent may be removed by the Controlling
Party at any time, with or without cause, by an instrument or concurrent
instruments in writing delivered to the Collateral Agent, the other Secured
Parties and the Seller.  A temporary successor may be removed at any time to
allow a successor Collateral Agent to be appointed pursuant to subsection (d)
below.  Any removal pursuant to the provisions of this subsection (c) shall take
effect only upon the date that is the latest of (i) the effective date of the
appointment of a successor Collateral Agent and the acceptance in writing by
such successor Collateral Agent of such appointment and of its obligation to
perform its duties hereunder in accordance with the provisions hereof, (ii)
delivery of the Collateral to such successor to be held in accordance with the
procedures specified in the Sale and Servicing Agreement and (iii) receipt by
the Controlling Party of an Opinion of Counsel to the effect described in
Section 4.5.

           (d)  ACCEPTANCE BY SUCCESSOR.  The Controlling Party shall have 
the sole right to appoint each successor Collateral Agent.  Every temporary 
or permanent successor Collateral Agent appointed hereunder shall execute, 
acknowledge and deliver to its predecessor and to each Secured Party and the 
Seller an instrument in writing accepting such appointment hereunder, and the 
relevant predecessor shall execute, acknowledge and deliver such other 
documents and instruments as will effectuate the delivery of all Collateral 
to the successor Collateral Agent to be held in accordance with the 
procedures specified in the Sale and Servicing Agreement, 


                                      8
<PAGE>

whereupon such successor, without any further act, deed or conveyance, shall 
become fully vested with all the estates, properties, rights, powers, duties 
and obligations of its predecessor.  Such predecessor shall, nevertheless, on 
the written request of any Secured Party or the Seller, execute and deliver 
an instrument transferring to such successor all the estates, properties, 
rights and powers of such predecessor hereunder.  In the event that any 
instrument in writing from the Seller or a Secured Party is reasonably 
required by a successor Collateral Agent to more fully and certainly vest in 
such successor the estates, properties, rights, powers, duties and 
obligations vested or intended to be vested hereunder in the Collateral 
Agent, any and all such written instruments shall, at the request of the 
temporary or permanent successor Collateral Agent, be forthwith executed, 
acknowledged and delivered by the Seller or such Secured Party.  The 
designation of any successor Collateral Agent and the instrument or 
instruments removing any Collateral Agent and appointing a successor 
hereunder, together with all other instruments provided for herein, shall be 
maintained with the records relating to the Collateral and, to the extent 
required by applicable law, filed or recorded by the successor Collateral 
Agent in each place where such filing or recording is necessary to effect the 
transfer of the Collateral to the sucessor Collateral Agent or to protect or 
continue the perfection of the security interests granted hereunder.

               Section 3.6.   INDEMNIFICATION.  AFL shall indemnify the
Collateral Agent, its directors, officers, employees and agents for, and hold
the Collateral Agent, its directors, officers, employees and agents harmless
against, any loss, liability or expense (including the costs and expenses of
defending against any claim of liability) arising out of or in connection with
the Collateral Agent's acting as Collateral Agent hereunder, except such loss,
liability or expense as shall result from the negligence, bad faith or willful
misconduct of the Collateral Agent or its officers or agents.  The obligation of
AFL under this Section shall survive the termination of this Agreement and the
resignation or removal of the Collateral Agent.  The Collateral Agent covenants
not to assert any Lien or to take any other action in respect of the Collateral
to enforce its rights to indemnification hereunder until the Final Termination
Date.

               Section 3.7.   COMPENSATION AND REIMBURSEMENT.  The Seller agrees
for the benefit of the Secured Parties and as part of the Secured Obligations
(a) to pay to the Collateral Agent, from time to time, reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a collateral
trustee); and (b) to reimburse the Collateral Agent upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Collateral Agent in accordance with any provision of, or carrying out its duties
and obligations under, this Security Agreement (including the reasonable
compensation and fees and the expenses and disbursements of its agents, any
independent certified public accountants and independent counsel), except any
expense, disbursement or advances as may be attributable to negligence, bad
faith or willful misconduct on the part of the Collateral Agent.

               Section 3.8.   REPRESENTATIONS AND WARRANTIES OF THE COLLATERAL
AGENT.  The Collateral Agent represents and warrants to the Seller and to each
Secured Party as follows:

          (a)  DUE ORGANIZATION.  The Collateral Agent is a national banking
association, duly organized, validly existing and in good standing under the
laws of the United States and is duly authorized and licensed under applicable
law to conduct its business as presently conducted.


                                      9
<PAGE>

          (b)  CORPORATE POWER.  The Collateral Agent has all requisite 
right, power and authority to execute and deliver this Security Agreement and 
to perform all of its duties as Collateral Agent hereunder.

          (c)  DUE AUTHORIZATION.  The execution and delivery by the Collateral
Agent of this Security Agreement and the other Transaction Documents to which it
is a party, and the performance by the Collateral Agent of its duties hereunder
and thereunder, have been duly authorized by all necessary corporate proceedings
and no further approvals or filings, including any governmental approvals, are
required for the valid execution and delivery by the Collateral Agent, or the
performance by the Collateral Agent, of this Security Agreement and such other
Transaction Documents.

          (d)  VALID AND BINDING AGREEMENT.  The Collateral Agent has duly
executed and delivered this Security Agreement and each other Transaction
Document to which it is a party, and each of this Security Agreement and each
such other Transaction Document constitutes the legal, valid and binding
obligation of the Collateral Agent, enforceable against the Collateral Agent in
accordance with its terms, except as (i) such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws relating to or affecting
the enforcement of creditors' rights generally and (ii) the availability of
equitable remedies may be limited by equitable principles of general
applicability.

               Section 3.9.   WAIVER OF SETOFFS.  The Collateral Agent hereby
expressly waives any and all rights of setoff that the Collateral Agent may
otherwise at any time have under applicable law with respect to any Secured
Account and agrees that amounts in the Secured Accounts shall at all times be
held and applied solely in accordance with the provisions hereof and of the
Transaction Documents.

               Section 3.10.  CONTROL BY THE CONTROLLING PARTY.  The Collateral
Agent shall comply with notices and instructions given by the Issuer only if
accompanied by the written consent of the Controlling Party, except that if any
Amortization Event shall have occurred and be continuing, the Collateral Agent
shall act upon and comply with notices and instructions given by the Controlling
Party alone in the place and stead of the Issuer.


                                    ARTICLE IV

                              COVENANTS OF THE ISSUER

          Section 4.1.   PRESERVATION OF COLLATERAL.  Subject to the rights,
powers and authorities granted to the Collateral Agent and the Controlling Party
in this Security Agreement, the Issuer shall take such action as is necessary
and proper with respect to the Collateral in order to preserve and maintain such
Collateral and to cause (subject to the rights of the Secured Parties) the
Collateral Agent to perform its obligations with respect to such Collateral as
provided herein.  The Issuer will do, execute, acknowledge and deliver, or cause
to be done, executed, acknowledged and delivered, such instruments of transfer
or take such other steps or actions as may be necessary, or required by the
Controlling Party, to perfect the security interests 


                                      10
<PAGE>

granted hereunder in the Collateral, to ensure that such security interests 
rank prior to all other Liens and to preserve the priority of such security 
interests and the validity and enforceability thereof.  Upon any delivery or 
substitution of Collateral, the Issuer shall be obligated to execute such 
documents and perform such actions as are necessary to create in the 
Collateral Agent for the benefit of the Secured Parties a valid first Lien 
on, and valid and perfected first priority security interest in, the 
Collateral so delivered and to deliver such Collateral to the Collateral 
Agent, free and clear of any other Lien, together with satisfactory 
assurances thereof, and to pay any reasonable costs incurred by any of the 
Secured Parties or the Collateral Agent (including its agents) or otherwise 
in connection with such delivery.

          Section 4.2.   NOTICES.  In the event that the Issuer acquires
knowledge of the occurrence and continuance of any Amortization Event or of any
event of default or like event, howsoever described or called, under any of the
Transaction Documents, the Issuer shall immediately give notice thereof to the
Collateral Agent and each Secured Party.

          Section 4.3.   WAIVER OF STAY OR EXTENSION LAWS; MARSHALLING OF
ASSETS.  The Issuer covenants, to the fullest extent permitted by applicable
law, that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any appraisement,
valuation, stay, extension or redemption law wherever enacted, now or at any
time hereafter in force, in order to prevent or hinder the enforcement of this
Security Agreement or any absolute sale of the Collateral or any part thereof,
or the possession thereof by any purchaser at any sale under Article VI of this
Security Agreement; and the Issuer, to the fullest extent permitted by
applicable law, for itself and all who may claim under it, hereby waives the
benefit of all such laws, and covenants that it will not hinder, delay or impede
the execution of any power herein granted to the Collateral Agent, but will
suffer and permit the execution of every such power as though no such law had
been enacted.  The Issuer, for itself and all who may claim under it, waives, to
the fullest extent permitted by applicable law, all right to have the Collateral
marshalled upon any foreclosure or other disposition thereof.

          Section 4.4.   NONINTERFERENCE, ETC.  The Issuer shall not (i) waive
or alter any of its rights under the Collateral (or any agreement or instrument
relating thereto) without the prior written consent of the Controlling Party; or
(ii) fail to pay any tax, assessment, charge or fee levied or assessed against
the Collateral, or to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the Seller's right, title or
interest in and to the Collateral or the Collateral Agent's lien on, and
security interest in, the Collateral for the benefit of the Secured Parties; or
(iii) take any action, or fail to take any action, if such action or failure to
take action will interfere with the enforcement of any rights under the
Transaction Documents.

          Section 4.5.   ISSUER CHANGES.

          (a)  CHANGE IN NAME, STRUCTURE, ETC.  The Issuer shall not change its
name, identity or trust structure unless it shall have given each Secured Party
and the Collateral Agent at least 30 days' prior written notice thereof, shall
have effected any necessary or appropriate assignments or amendments thereto and
filings of financing statements or amendments thereto, and shall have delivered
to the Collateral Agent and each Secured Party an Opinion of Counsel either (a)
stating that, in the opinion of such counsel, such action has been taken with
respect to 


                                      11
<PAGE>

the execution and filing of any amendments to previously recorded financing 
statements and continuation statements and other actions as are necessary to 
perfect, maintain and protect the lien and security interest of the 
Collateral Agent (and the priority thereof), on behalf of the Secured 
Parties, with respect to such Collateral against all creditors and purchasers 
from the Issuer and reciting the details of such action, or (b) stating that, 
in the opinion of such counsel, no such action is necessary to maintain such 
perfected lien and security interest.

           (b)  RELOCATION OF THE ISSUER.  The Issuer shall not change its 
principal executive office unless it gives each Secured Party and the 
Collateral Agent at least 30 days' prior written notice of any relocation of 
its principal executive office.  If the Issuer relocates its principal 
executive office or principal place of business from 7825 Washington Avenue 
South, Minneapolis, Minnesota 55439-2435, or 1100 North Market Street, Rodney 
Square North, Wilmington, Delaware, 19890-0001, the Issuer shall give prior 
notice thereof to the Controlling Party and the Collateral Agent and shall 
effect whatever appropriate recordations and filings are necessary and shall 
provide an Opinion of Counsel to the Controlling Party and the Collateral 
Agent, to the effect that, upon the recording of any necessary assignments or 
amendments to previously-recorded assignments and filing of any necessary 
amendments to the previously filed financing or continuation statements or 
upon the filing of one or more specified new financing statements, and the 
taking of such other actions as may be specified in such opinion, the 
security interests in the Collateral shall remain, after such relocation, 
valid and perfected.

                                    ARTICLE V

                    CONTROLLING PARTY; INTERCREDITOR PROVISIONS

          Section 5.1.   APPOINTMENT OF CONTROLLING PARTY.  From and after the
Closing Date until the Insurer Termination Date, the Security Insurer shall be
the Controlling Party and shall be entitled to exercise all the rights given the
Controlling Party hereunder.  From and after the Insurer Termination Date until
the Trustee Termination Date, the Indenture Trustee hereby agrees that the
Administrative Agent (acting at the direction of the Agents) shall be the
Controlling Party.  Notwithstanding the foregoing, in the event that an Insurer
Default shall have occurred and be continuing, the Administrative Agent (acting
at the direction of the Agents) shall be the Controlling Party until the Trustee
Termination Date.  If prior to an Insurer Termination Date the Administrative
Agent shall have become the Controlling Party as a result of the occurrence of
an Insurer Default and either such Insurer Default is cured or for any other
reason ceases to exist or the Trustee Termination Date occurs, then upon such
cure or other cessation or on such Trustee Termination Date, as the case may be,
the Security Insurer shall, upon notice thereof being duly given to the
Collateral Agent, again be the Controlling Party.

          Section 5.2.   CONTROLLING PARTY'S AUTHORITY.

          (a)  Each of the Issuer, AFL, the Seller and the Secured Parties
hereby irrevocably appoints the Controlling Party, and any successor to the
Controlling Party appointed pursuant to Section 5.1, its true and lawful
attorney, with full power of substitution, in the name of the Issuer, AFL, the
Seller, the Secured Parties or otherwise, but at the expense of the Seller, to
the extent permitted by law to exercise in its sole and absolute discretion, at
any time and from 


                                      12
<PAGE>

time to time while any Amortization Event has occurred and is continuing, any 
or all of the following powers with respect to all or any of the Collateral:  
(i) to demand, sue for, collect, receive and give acquittance for any and all 
monies due or to become due upon or by virtue thereof, (ii) to settle, 
compromise, compound, prosecute or defend any action or proceeding with 
respect thereto, (iii) to sell, securitize, transfer, assign or otherwise 
deal with the same or the proceeds thereof as fully and effectively as if the 
Collateral Agent were the absolute owner thereof, and (iv) to extend the time 
of payment of any or all thereof and to make any allowance or other 
adjustments with respect thereto; PROVIDED, that the foregoing powers and 
rights shall be exercised in accordance with the provisions of Article VI.

           (b)  Each Secured Party hereby irrevocably and unconditionally 
constitutes and appoints the Controlling Party, and any successor to the 
Controlling Party appointed pursuant to Section 5.1 from time to time, as the 
true and lawful attorney-in-fact of such Secured Party for so long as such 
Secured Party is a Non-Controlling Party, with full power of substitution, to 
execute, acknowledge and deliver any notice, document, certificate, paper, 
pleading or instrument and to do in the name of the Controlling Party as well 
as in the name, place and stead of such Secured Party such acts, things and 
deeds for and on behalf of and in the name of such Secured Party under this 
Security Agreement that such Secured Party could or might do or which may be 
necessary, desirable or convenient in the Controlling Party's sole discretion 
to effect the purposes contemplated hereunder and, without limitation, 
exercise full right, power and authority to take, or defer from taking, any 
and all acts with respect to the administration of the Collateral, and the 
enforcement of the rights of the Secured Parties hereunder, on behalf of and 
for the benefit of the Controlling Party and such Non-Controlling Party, as 
their interests may appear.

          Section 5.3.   RIGHTS OF SECURED PARTIES.  The Non-Controlling Parties
at any time expressly agree that they shall not assert any right that they may
otherwise have, as a Secured Party with respect to the Collateral, to direct the
maintenance, sale or other disposition of the Collateral or any portion thereof,
notwithstanding the occurrence and continuation of any Amortization Event or any
non-performance by AFL, the Seller or the Issuer of any obligation owed to such
Secured Party hereunder or under any other Transaction Document, and each party
hereto agrees that the Controlling Party shall be the only Person entitled to
assert and exercise such rights.

          Section 5.4.   DEGREE OF CARE.

          (a)  CONTROLLING PARTY.  Notwithstanding any term or provision of this
Security Agreement, the Controlling Party shall incur no liability to AFL, the
Seller or the Issuer for any action taken or omitted by the Controlling Party in
connection with the Collateral, except for any gross negligence, bad faith or
willful misconduct on the part of the Controlling Party and, further, shall
incur no liability to the Non-Controlling Parties except for a breach of the
terms of this Security Agreement or for gross negligence, bad faith or willful
misconduct in carrying out its duties to the Non-Controlling Parties.  The
Controlling Party shall be protected and shall incur no liability to any such
party in relying upon the accuracy, acting in reliance upon the contents and
assuming the genuineness of any notice, demand, certificate, signature,
instrument or other document believed by the Controlling Party to be genuine and
to have been duly executed by the appropriate signatory, and (absent manifest
error or actual knowledge to the contrary) the 


                                      13
<PAGE>

Controlling Party shall not be required to make any independent investigation 
with respect thereto.  The Controlling Party shall, at all times, be free 
independently to establish to its reasonable satisfaction the existence or 
nonexistence, as the case may be, of any fact the existence or nonexistence 
of which shall be a condition to the exercise or enforcement of any right or 
remedy under this Security Agreement or any of the Transaction Documents.

          (b)  THE NON-CONTROLLING PARTIES.  The Non-Controlling Parties shall
not be liable to the Seller, AFL or the Issuer for any action or failure to act
by the Controlling Party or the Collateral Agent in exercising, or failing to
exercise, any rights or remedies hereunder.


                                    ARTICLE VI

                               REMEDIES UPON DEFAULT

          Section 6.1.   REMEDIES UPON A DEFAULT.

          (a)  If an Amortization Event has occurred and is continuing, the 
Collateral Agent shall, at the direction of the Controlling Party, take 
whatever action at law or in equity as may appear necessary or desirable in 
the judgment of the Controlling Party to collect and satisfy all Secured 
Obligations (including, but not limited to, foreclosure upon the Collateral 
and sale or securitization of the Collateral and all other rights available 
to secured parties under applicable law) or to enforce performance and 
observance of any obligation, agreement or covenant under any of the 
Transaction Documents.  In addition to all other rights and remedies granted 
to the Collateral Agent for the benefit of the Secured Parties by this 
Security Agreement, the other Transaction Documents, the UCC and other 
applicable law, rules, or regulations, the Collateral Agent may with the 
consent of the Controlling Party, and shall upon the request of the 
Controlling Party, upon the occurrence and during the continuance of any such 
Amortization Event, exercise any one or more of the following rights and 
remedies:  foreclose upon or otherwise enforce the security interests in any 
or all Collateral in any manner permitted by applicable law, rules, or 
regulations or in this Security Agreement;  notify any or all Obligors to 
make payments with respect to Receivables directly to the Collateral Agent; 
sell or otherwise dispose of any or all Collateral at one or more public or 
private sales, for cash or credit or future delivery, on such terms and in 
such manner as the Controlling Party may determine;  require AFL, the Seller 
or the Issuer to assemble the Collateral and make it available to the 
Collateral Agent at a place to be designated by the Collateral Agent;  enter 
onto any property where any Collateral is located and take possession thereof 
with or without judicial process; and  enforce any rights of the Issuer under 
any Receivable or other agreement to the extent the Controlling Party deems 
appropriate.  In furtherance of the Collateral Agent's rihts hereunder, each 
of AFL, the Seller and the Issuer hereby grants to the Collateral Agent an 
irrevocable, non-exclusive license (exercisable without royalty or other 
payment by the Collateral Agent) to use, license or sublicense any patent, 
trademark, tradename, copyright or other intellectual property in which the 
Issuer now or hereafter has any right, title or interest, together with the 
right of access to all media in which any of the foregoing may be recorded or 
stored.  Each of AFL, the Seller and the Issuer hereby agrees that ten (10) 
days notice of any intended sale or disposition of any Collateral is 
reasonable.  Notwithstanding the foregoing, the Collateral Agent shall not be 
entitled to take any action and the Controlling Party shall not be entitled 
to give any direction 


                                      14
<PAGE>

with respect to the Collateral, except to the extent provided herein and in 
the Sale and Servicing Agreement or other Transaction Documents.

          (b)  In the event of any sale, collection, conversion or other 
disposition into cash of the Collateral, or any part thereof, after deducting 
any actual costs and expenses incurred in connection with any such 
disposition, the Collateral Agent shall deposit the proceeds thereof into the 
Collection Account for distribution on the next succeeding Distribution Date 
in accordance with the priorities set forth in Section 4.6 of the Sale and 
Servicing Agreement.

          (c)  The Controlling Party and the Collateral Agent shall be entitled
to obtain from AFL, the Seller and the Issuer all records and documentation in
the possession of AFL, the Seller or the Issuer, as the case may be, pertaining
to any Collateral.  Upon consummation of any sale pursuant to this Section 6.1,
the Controlling Party, or the Collateral Agent acting on behalf of and at the
direction of the Controlling Party, shall have the right to assign, transfer,
endorse and deliver to the purchaser or purchasers thereof (which may include
the Security Insurer), free and clear of any Lien, the Collateral, or any
portion thereof or any interest therein, so sold.  Each purchaser at any such
sale shall hold the property purchased by it absolutely free and clear from any
claim or right on the part of the Secured Parties, AFL, the Seller or the Issuer
and AFL, the Seller and the Issuer hereby irrevocably waive all rights of
redemption, stay, marshalling of assets or appraisal that either of them now has
or may at any time in the future have under applicable law or statute now
existing or hereafter enacted.

          (d)  In addition to the remedies granted in this Agreement and the
other Transaction Documents, if an Amortization Event has occurred and is
continuing, the Collateral Agent shall, at the direction of the Controlling
Party, take whatever action at law or in equity as may appear necessary or
desirable in the judgment of the Controlling Party to collect the amounts then
due and thereafter to become due under this Agreement and any of the other
Transaction Documents (including but not limited to, all rights available to
secured parties under applicable law) or to enforce performance and observance
of any obligation, agreement or covenant under any of the Transaction Documents,
including the exercise of the following powers with respect to the Collateral:
(i) to demand, sue for, collect, receive and give acquittance for any and all
monies due or to become due upon or by virtue thereof, (ii) to settle,
compromise, compound, prosecute or defend any action or proceeding with respect
thereto, (iii) to sell, securitize, transfer, assign or otherwise deal with the
same or the proceeds thereof as fully and effectively as if the Collateral Agent
were the absolute owner thereof, and (iv) to extend the time of payment of any
or all thereof and to make any allowance or other adjustment with respect
thereto.  All proceeds of any portion of the Collateral liquidated pursuant to
this Section 6.1 shall be applied as set forth in Subsection (b) above.

          (e)  The Collateral Agent and the Controlling Party, as the case may
be, may exercise the powers and rights granted by this Section 6.1, without
notice or demand to the Indenture Trustee, AFL, the Seller or the Issuer except
as provided in (a) above.

          Section 6.2.   RESTORATION OF RIGHTS AND REMEDIES.  If the Collateral
Agent has instituted any proceeding to enforce any right or remedy under this
Agreement, and such proceeding has been discontinued or abandoned for any
reason, or has been determined 


                                      15

<PAGE>

adversely to such Collateral Agent, then and in every such case the Seller, 
the Collateral Agent and each of the Secured Parties shall, subject to any 
determination in such proceeding, be restored severally and respectively to 
their former positions hereunder, and thereafter all rights and remedies of 
the Secured Parties shall continue as though no such proceeding had been 
instituted.

          Section 6.3.   NO REMEDY EXCLUSIVE.  No right or remedy herein
conferred upon or reserved to the Collateral Agent, the Controlling Party or any
of the Secured Parties is intended to be exclusive of any other right or remedy,
and every right or remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law, in equity or otherwise and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised by the Controlling Party, and the exercise of or the beginning of the
exercise of any right or power or remedy shall not be construed to be a waiver
of the right to exercise at the same time or thereafter any other right, power
or remedy.



                                   ARTICLE VII

                                   MISCELLANEOUS

          Section 7.1.   FURTHER ASSURANCES.  Each party hereto shall take such
action and deliver such instruments to any other party hereto, in addition to
the actions and instruments specifically provided for herein, as may be
reasonably requested or required to effectuate the purpose or provisions of this
Security Agreement or to confirm or perfect any transaction described or
contemplated herein.

          Section 7.2.   WAIVER.  Any waiver by any party of any provision of
this Security Agreement or any right, remedy or option hereunder shall only
prevent and estop such party from thereafter enforcing such provision, right,
remedy or option if such waiver is given in writing and only as to the specific
instance and for the specific purpose for which such waiver was given.  The
failure or refusal of any party hereto to insist in any one or more instances,
or in a course of dealing, upon the strict performance of any of the terms or
provisions of this Security Agreement by any party hereto or the partial
exercise of any right, remedy or option hereunder shall not be construed as a
waiver or relinquishment of any such term or provision, but the same shall
continue in full force and effect.

          Section 7.3.   AMENDMENTS; WAIVERS.  No amendment, modification,
waiver or supplement to this Security Agreement or any provision of this
Security Agreement shall in any event be effective unless the same shall have
been made or consented to in writing by each of the parties hereto; PROVIDED,
HOWEVER, that, for so long as the Security Insurer shall be the Controlling
Party, amendments, modifications, waivers or supplements hereto or any
requirement hereunder to deposit or retain any amounts in the Secured Accounts
shall be effective if made or consented to in writing by the Security Insurer,
the Seller, AFL, the Issuer, the Agent, the Indenture Trustee and the Collateral
Agent (the consent of which shall not be withheld or delayed with respect to any
amendment that has been consented to by the Security 

                                        16

<PAGE>

Insurer and that does not adversely affect the Collateral Agent) but shall in 
no circumstances require the consent of the Noteholders.

          Section 7.4.   SEVERABILITY.  In the event that any provision of this
Security Agreement or the application thereof to any party hereto or to any
circumstance or in any jurisdiction governing this Security Agreement shall, to
any extent, be invalid or unenforceable under any applicable statute, regulation
or rule of law, then such provision shall be deemed inoperative to the extent
that it is invalid or unenforceable and the remainder of this Security
Agreement, and the application of any such invalid or unenforceable provision to
the parties, jurisdictions or circumstances other than to whom or to which it is
held invalid or unenforceable, shall not be affected thereby nor shall the same
affect the validity or enforceability of any other provision of this Security
Agreement.  The parties hereto further agree that the holding by any court of
competent jurisdiction that any remedy pursued by the Collateral Agent or any of
the Secured Parties hereunder is unavailable or unenforceable shall not affect
in any way the ability of the Collateral Agent or any of the Secured Parties to
pursue any other remedy available to it or them (subject, however, to the
provisions of this Security Agreement limiting such remedies).

          Section 7.5.   NONPETITION COVENANT.  Notwithstanding any prior
termination of this Security Agreement, each of the parties hereto agrees that
it shall not, prior to one year and one day after the Final Termination Date,
acquiesce, petition or otherwise invoke or cause the Seller or the Issuer to
invoke the process of the United States of America, any State or other political
subdivision thereof or any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government for the
purpose of commencing or sustaining a case by or against the Seller or the
Issuer under a Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or
other similar official of the Seller or the Issuer or all or any part of its
property or assets or ordering the winding up or liquidation of the affairs of
the Seller or the Issuer.  The parties agree that damages will be an inadequate
remedy for breach of this covenant and that this covenant may be specifically
enforced.

          Section 7.6.   NOTICES.  All notices, demands, certificates, requests
and communications hereunder ("notices") shall be in writing and shall be
effective (a) upon receipt when sent through the U.S. mails, registered or
certified mail, return receipt requested, postage prepaid, with such receipt to
be effective the date of delivery indicated on the return receipt, or (b) one
Business Day after delivery to an overnight courier, or (c) on the date
personally delivered to an Authorized Officer of the party to which sent, or (d)
on the date transmitted by legible telecopier transmission with a confirmation
of receipt, in all cases addressed to the recipient as follows:

               (i)  If to AFL:

                    Arcadia Financial Ltd.
                    7825 Washington Avenue South, Suite 500
                    Minneapolis, Minnesota 55439-2435
                    Attention:  Treasurer

                    Telecopier No.:     (612) 942-6620


                                      17

<PAGE>



               (ii) If to the Seller:

                    Arcadia Receivables Finance Corp.
                    7825 Washington Avenue South
                    Suite 900
                    Minneapolis, Minnesota  55439-2435
                    Attention:  Treasurer

                    Telecopier No.:  (612) 942-6620

               (iii)     If to the Security Insurer:

                    Financial Security Assurance Inc.
                    350 Park Avenue - 13th Floor
                    New York, New York 10022
                    Attention:  Surveillance Department

                    Telecopier No.:     (212) 755-5165
                                        (212) 688-3101

               (in each case in which notice or other communication to the
               Security Insurer refers to an Amortization Event or a claim on
               the Policy or in which failure on the part of the Security
               Insurer to respond shall be deemed to constitute consent or
               acceptance, then with a copy to the attention of the Senior Vice
               President Surveillance)

               (iv) If to the Indenture Trustee:

                    Norwest Bank Minnesota, National Association
                    Sixth Street and Marquette Avenue
                    Minneapolis, Minnesota  55479-0070
                    Attention:  Corporate Trust Services -
                    Asset-Backed Administration

                    Telecopier No.:     (612) 667-3539

               (v)  If to the Collateral Agent:

                    Norwest Bank Minnesota, National Association
                    Sixth Street and Marquette Avenue
                    Minneapolis, Minnesota  55479-0070
                    Attention:  Corporate Trust Services -
                    Asset-Backed Administration

                    Telecopier No.:     (612) 667-3539

                                      18


<PAGE>



               (vi) If to Moody's:

                    Moody's Investor's Service, Inc.
                    99 Church Street
                    New York, New York 10007

                    Telecopier No.:     (212) 553-0344

               (vii)     If to Standard & Poor's:

                    Standard & Poor's Ratings Group
                    26 Broadway
                    New York, New York 10004

                    Telecopier No.:     (212) 208-1582

               (viii)    If to the Issuer:

                    Arcadia Automobile Receivables Warehouse Trust
                    c/o Wilmington Trust Company,
                        as Owner Trustee
                    1100 North Market Street
                    Rodney Square North
                    Wilmington, Delaware 19890-0001
                    Attn:  Corporate Trust Administration,

                    with copies to:

                    Arcadia Financial Ltd.
                    7825 Washington Avenue South, Suite 500
                    Minneapolis, Minnesota  55439-2435

                    Telecopier No.:     (612) 942-6620

               (ix) If to the Administrative Agent:

                    Bank of America National Trust and Savings Association
                    Asset Securitization Group
                    231 South LaSalle Street
                    Chicago, Illinois  60697
                    Attention:  Albert Yoshimura

                    Telecopier No.:     (312) 923-0273

A copy of each notice given hereunder to any party hereto shall also be given to
(without duplication) the Security Insurer, the Seller, the Issuer, the
Administrative Agent, the Indenture 

                                      19


<PAGE>


Trustee and the Collateral Agent.  Each party hereto may, by notice given in 
accordance herewith to each of the other parties hereto, designate any 
further or different address to which subsequent notices shall be sent.

          Section 7.7.   TERM OF THIS SECURITY AGREEMENT.  This Security
Agreement shall continue in effect until the Final Termination Date.  On such
Final Termination Date, this Security Agreement shall terminate, all obligations
of the parties hereunder shall cease and terminate and the Collateral, if any,
held hereunder and not to be used or applied in discharge of any obligations of
the Issuer, the Seller or AFL in respect of the Secured Obligations or otherwise
under this Agreement or any of the Transaction Documents, shall be released to
and in favor of the Issuer; PROVIDED, that the provisions of Sections 3.6, 3.7
and 7.5 shall survive any termination of this Security Agreement and the release
of any Collateral upon such termination.

          Section 7.8.   ASSIGNMENTS; THIRD-PARTY RIGHTS; REINSURANCE.

          (a)  This Security Agreement shall be a continuing obligation of the
parties hereto and shall (i) be binding upon the parties and their respective
successors and assigns, and (ii) inure to the benefit of and be enforceable by
each Secured Party and the Collateral Agent, and by their respective successors,
transferees and assigns.  None of the Issuer, the Seller nor AFL may assign this
Security Agreement, or delegate any of its duties hereunder, without the prior
written consent of the Controlling Party.

          (b)  The Security Insurer shall have the right (unless an Insurer
Default shall have occurred and be continuing) to give participations in its
rights under this Security Agreement and to enter into contracts of reinsurance
with respect to the Note Policy and each such participant or reinsurer shall be
entitled to the benefit of any representation, warranty, covenant and obligation
of each party (other than the Security Insurer) hereunder as if such participant
or reinsurer was a party hereto and, subject only to such agreement regarding
such reinsurance or participation, shall have the right to enforce the
obligations of each such other party directly hereunder; PROVIDED, HOWEVER, that
no such reinsurance or participation agreement or arrangement shall relieve the
Security Insurer of its obligations hereunder, under the Transaction Documents
to which it is a party or under the Note Policy.  In addition, nothing contained
herein shall restrict the Security Insurer from assigning to any Person pursuant
to any liquidity facility or credit facility any rights of the Security Insurer
under this Security Agreement or with respect to any real or personal property
or other interests pledged to the Security Insurer, or in which the Security
Insurer has a security interest, in connection with the transactions
contemplated hereby.  The terms of any such assignment or participation shall
contain an express acknowledgment by such Person of the condition of this
Section and the limitations of the rights of the Security Insurer hereunder.

          Section 7.9.   CONSENT OF CONTROLLING PARTY.  In the event that the
Controlling Party's consent is required under the terms hereof or under the
terms of any Transaction Document, it is understood and agreed that, except as
otherwise provided expressly herein, the determination whether to grant or
withhold such consent shall be made solely by the Controlling Party in its sole
and absolute discretion.

                                      20


<PAGE>


          Section 7.10.  TRIAL BY JURY WAIVED.  EACH OF THE PARTIES HERETO
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF,
UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT, ANY OF THE OTHER
TRANSACTION DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREUNDER OR
THEREUNDER.  EACH OF THE PARTIES HERETO (a) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAVIER AND (b) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS SECURITY AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS TO WHICH IT IS A
PARTY, BY AMONG OTHER THINGS, THIS WAIVER.

          Section 7.11.  GOVERNING LAW.  THIS SECURITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.

          Section 7.12.  CONSENTS TO JURISDICTION.  Each of the parties hereto
irrevocably submits to the jurisdiction of the United States District Court for
the Southern District of New York, any court in the sate of New York located in
the city and county of New York, and any appellate court from any thereof, in
any action, suit or proceeding brought against it and related to or in
connection with this Security Agreement, the other Transaction Documents or the
transactions contemplated hereunder or thereunder or for recognition or
enforcement of any judgment and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such suit or action or
proceeding may be heard or determined in such New York State court or, to the
extent permitted by law, in such federal court.  Each of the parties hereto
agrees that a final judgment in any such action, suit or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.  To the extent permitted by applicable law,
each of the parties hereby waives and agrees not to assert by way of motion, as
a defense or otherwise in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such courts, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Security Agreement or any of
the other Transaction Documents or the subject matter hereof or thereof may not
be litigated in or by such courts.  Each of AFL, the Seller and the Issuer
hereby irrevocably appoints and designates CT Corporation System, 1633 Broadway,
New York, New York 10019 as its true and lawful attorney and duly authorized
agent for acceptance of service of legal process.  Each of AFL, the Seller and
the Issuer agrees that service of such process upon such Person shall constitute
personal service of such process upon it.  Nothing contained in this Security
Agreement shall limit or affect the rights of any party herto to serve process
in any other manner permitted by law or to start legal proceedings relating to
any of the Transaction Documents against AFL, the Seller, the Issuer or their
respective property in the courts of any jurisdiction.

          Section 7.13.  LIMITATION OF LIABILITY.

               (a)  It is expressly understood and agreed by the parties hereto
that Norwest Bank Minnesota, National Association is executing this Security
Agreement not in its individual capacity but solely in its capacity as indenture
trustee pursuant to the Indenture and as Collateral Agent hereunder.


                                      21


<PAGE>

               (b)  It is expressly understood and agreed to by the parties
hereto that Wilmington Trust Company is executing this Security Agreement not in
its individual capacity but solely in its capacity as Owner Trustee pursuant to
the Trust Agreement.

          Section 7.14.  DETERMINATION OF ADVERSE EFFECT.  Any determination of
an adverse effect on the interest of the Secured Parties or the Noteholders
shall be made without consideration of the availability of funds under the Note
Policy.

          Section 7.15.  COUNTERPARTS.  This Security Agreement may be executed
in two or more counterparts by the parties hereto, and each such counterpart
shall be considered an original and all such counterparts shall constitute one
and the same instrument.

          Section 7.16.  HEADINGS.  The headings of sections and paragraphs and
the Table of Contents contained in this Security Agreement are provided for
convenience only.  They form no part of this Security Agreement and shall not
affect its construction or interpretation.

          Section 7.17.  LIMITED RECOURSE.  Notwithstanding anything to the
contrary contained herein, the obligations of the Issuer hereunder shall not be
recourse to the Issuer (or any person or organization acting on behalf of the
Issuer, the Owner Trustee or any affiliate, employee, incorporator, stockholder,
officer or director of the Owner Trustee), other than to the Receivables and the
other Collateral and the proceeds thereof as provided in this Security
Agreement, the Sale and Servicing Agreement.  Each of the parties hereto hereby
agree that to the extent such funds are insufficient or assets are unavailable
to pay any amounts owing to it from the other party pursuant to this Security
Agreement, it shall not constitute a claim against the other party.

          Section 7.18.  RESPECTIVE RIGHTS OF THE ISSUER AND THE SECURED PARTIES
IN THE COLLATERAL.  The Issuer hereby acknowledges and agrees that its interest
in the Collateral under the Sale and Servicing Agreement is subject and
subordinate in all respects to its pledge of the Collateral to the Secured
Parties under this Security Agreement and that the Collateral Agent holds the
Collateral first for the Secured Parties hereunder and second on behalf of the
Issuer in respect of its interest in the Collateral under the Sale and Servicing
Agreement.

                                      22

<PAGE>


          IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Security Agreement as of the date set forth on the first page hereof.

                                     ARCADIA FINANCIAL LTD.


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:

                                     ARCADIA RECEIVABLES FINANCE CORP.


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


                                     ARCADIA RECEIVABLES CONDUIT CORP.


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


                                     ARCADIA AUTOMOBILE RECEIVABLES
                                       WAREHOUSE TRUST

                                    By: WILMINGTON TRUST COMPANY,
                                        not in its individual capacity but 
                                        solely as Owner Trustee,


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


                                     FINANCIAL SECURITY ASSURANCE INC.


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:



            [Signature Page to Amended and Restated Security Agreement]

<PAGE>


                                     NORWEST BANK MINNESOTA,
                                     NATIONAL ASSOCIATION,
                                     as Indenture Trustee


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


                                     NORWEST BANK MINNESOTA,
                                       NATIONAL ASSOCIATION,
                                     as Collateral Agent


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


                                     BANK OF AMERICA NATIONAL TRUST
                                       AND SAVINGS ASSOCIATION


                                     By: 
                                         ------------------------------------
                                         Name:
                                         Title:


            [Signature Page to Amended and Restated Security Agreement]